# VAT on Electricity Cut to 0%: What It Means for Business > VAT on domestic electricity falls to 0% from 1 October 2026. Here's which businesses, landlords and home workers benefit, and who still pays 20%. Last updated: 2026-09-22 *Blog | by Josh Clarke | September 2026* # VAT on Electricity Drops to 0% From 1 October 2026: What It Means for Your Business ### Josh Clarke From 1 October 2026 VAT on electricity used at home in Great Britain drops from 5% to 0% for six months, and it's already getting plenty of coverage as a saving for households. What's had far less attention is where businesses fit in. Most business electricity won't see any change at all, but some small businesses, landlords, charities and anyone working from home will and a surprising number of small firms are already paying more VAT on their power than they need to. This guide explains who actually benefits, who doesn't and what's worth checking on your next bill. ## What exactly is changing on 1 October 2026? HMRC's Revenue and Customs Brief 10 (2026) confirms a temporary zero rate of VAT for qualifying supplies in England, Scotland and Wales running from 1 October 2026 to 31 March 2027. Qualifying supplies are the same ones that already get the 5% reduced rate: power for domestic use, for a charity's non-business activities, and small "de minimis" supplies. HMRC has been clear that there are no changes to which supplies qualify for relief, only to the rate those supplies are charged at. It's worth being precise about what the change doesn't cover. Gas, heating oil and other fuels stay at their current rates, and Northern Ireland remains at 5% because the zero rate only applies in Great Britain. For a typical household the saving is estimated at around £45 over the year, so this is a helpful nudge rather than a transformation, but for small organisations running tight margins every little bit counts. ## Does my business electricity get the 0% rate? For most businesses the answer is no. Power supplied to a business for business use is normally charged at the standard 20% rate, and that doesn't change on 1 October. If your company is VAT registered you'll usually be reclaiming that 20% on your VAT return anyway, so the headline rate on your bill matters less than it looks. The exception is the de minimis rule, which is where a lot of small businesses lose out without realising. Under VAT Notice 701/19 a supply averaging no more than 33 kWh per day (1,000 kWh per month) to one customer at one premises is treated as qualifying use and charged at the reduced rate, even if the customer is a business and without needing any certificate. From 1 October that reduced rate becomes 0%. A small shop, a single-room office, a treatment room or a small unit using modest amounts of power could easily sit under that threshold and should, in principle, be paying the reduced rate rather than 20%. Who actually saves money from this? The biggest cash saving is for customers who cannot recover the VAT charged to them. A fully taxable VAT-registered business with full input tax recovery will generally see little or no net VAT saving, whereas a business that is not VAT registered, is partly exempt or otherwise has restricted input tax recovery can benefit directly from the lower rate. Mixed-use premises are worth a mention too. Where a single supply covers both qualifying and non-qualifying use, the rule is that if 60% or more of it is for qualifying use, the whole supply can be treated as qualifying. That's relevant for things like a flat above a shop on one meter, or a care or residential setting with a small office attached. ## I work from home. Does this affect what I can claim? If you're self-employed or a director working from home, the cheaper household bill is simply a saving on your personal costs. The only knock-on effect is if you claim a share of your actual household energy costs as a business expense, since a lower bill means a slightly lower claim for that six-month period. If you use a flat-rate method instead, such as simplified expenses for the self-employed or a company paying a director a flat home-working allowance, nothing changes. It's also a sensible prompt to make sure your use-of-home claim is calculated on a reasonable, documented basis. We see plenty of claims that were set up years ago and never revisited, and a change in the underlying bill is a natural moment to sanity-check the method. ## What should I check on my next bill? When it comes to VAT on electricity, the first bill after 1 October is the one to look at properly. Where a billing period straddles the change, HMRC allows suppliers to split the VAT based on when the energy was actually used, using meter readings, so you may see both rates on one bill. That's normal and not an error. 1. Is VAT being charged at 20% on a supply that looks like it's under 1,000 kWh a month? If so, ask your supplier to apply the de minimis reduced rate. 2. If you're a charity or have residential use on the premises, has your supplier got an up-to-date VAT declaration on file so the zero rate is applied? 3. Are you on a fixed tariff? Suppliers are expected to pass the cut on to fixed-rate customers too, so check it's actually coming through. 4. If you're VAT registered, is your bookkeeping picking up the right VAT rate on each bill so you don't over-claim input tax? On the last point, it's a common error. If your bookkeeping software or an automated rule assumes 20% on every energy bill, you'll overclaim VAT on any supply now at 0%, and that's the kind of small, repeated error that shows up badly in an HMRC check. At LYA our bill-processing automation reads and codes each supplier bill as it arrives in Xero, so the VAT on electricity and every other utility follows what's actually on the invoice rather than a default assumption. ## Is it worth reviewing my business energy contract while I'm at it? In most cases yes, because the VAT change is small compared with the price you're paying per unit. We covered the wider picture in our guide to [what the energy price cap rise means for businesses](https://loveyouraccountants.com/knowledge/energy-price-cap-rise-business-2026), and the key point still applies: business energy isn't protected by the price cap, so contract renewal dates and the rate you agree matter far more than the VAT rate on top. This is also something we can help with directly. LYA can introduce you to a trusted energy partner who reviews business gas and electricity bills for free, looking for savings, and there's no obligation to switch if nothing better turns up. If your renewal is coming up in the next few months, it's a very easy win to check before you roll onto another year at an out-of-contract rate. ## Frequently asked questions How long does the 0% VAT rate on electricity last? The temporary zero rate runs from 1 October 2026 to 31 March 2027. Unless the government extends it, qualifying electricity supplies go back to the 5% reduced rate from 1 April 2027. Does the VAT cut apply to gas? No. The zero rate only applies to qualifying supplies of electricity. Domestic gas and other fuels stay at their existing VAT rates. What counts as a de minimis electricity supply? Under VAT Notice 701/19, a supply averaging no more than 33 kWh per day, or 1,000 kWh per month, to one customer at one premises is treated as qualifying use. It gets the reduced rate even if the customer is a business, and from 1 October 2026 that means 0%. I'm VAT registered. Does the cut save my business money? Usually very little, because a VAT-registered business normally reclaims the VAT on its business electricity anyway. The businesses that genuinely save are those that aren't VAT registered, are partly exempt, or use electricity in a qualifying way such as residential lettings where the landlord pays the bill. Need help? If you're not sure which VAT rate should be on your electricity bill, want your bookkeeping checked so energy VAT is being claimed correctly, or would like an introduction to our energy partner for a free bill review, the LYA team is happy to help. Email support.london@loveyouraccountants.com or call 01372 374143, or book a free consultation to get started. Book a free consultation: [https://loveyouraccountants.com/contact](https://loveyouraccountants.com/contact). Tags: HMRC, small business, SMEs, VAT ![](https://loveyouraccountants.com/asset/2481/175-175-def/4a37688b-69ab-411b-810b-4fb6eba75354.jpg) **Author** ###### **Josh Clarke** Josh is our Chief Operating Officer, overseeing operations to ensure a smooth, responsive and high-quality service. With a practical, clear approach... [Read more](https://loveyouraccountants.com/author-josh-clarke) --- ### Related Blogs - [VAT on Electricity Cut to 0%: What It Means for Business](https://loveyouraccountants.com/knowledge/vat-electricity-zero-rate-october-2026-business) — VAT on domestic electricity falls to 0% from 1 October 2026. Here's which businesses, landlords and home workers benefit, and who still pays 20%. - [UK Interest Rate Rises 2026: What It Means for Business](https://loveyouraccountants.com/knowledge/uk-interest-rate-rises-business-2026) — Markets are now pricing in UK interest rate rises rather than cuts in 2026. 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